Working less

The above chart, based on St. Louis Fed data, means something, though I’m not quite sure what. Certainly the average worker is putting in fewer hours each year. The number was 1,912 hours in 1970; it fell to a low of 1,732 in 2009, then rose a bit the following year.

We can also see that after a period of relatively stable numbers during the 80s, the number of hours worked climbed during the Clinton administration, only to fall precipitously under Bush II. We might ask, “What’s wrong with working less?” After all, that seemed to be a goal a while ago, experiencing more leisure time as technology lessened the need for us to work. Perhaps we were making more money per hour worked, in which case our standards of living may have remained the same or even rose a bit.

Hmm. Real wages increased by 12 percent under Clinton, seven percent under Bush II, and remained flat under Obama. The Great Recession had almost everything to do with the last period. Nevertheless, though we are working fewer hours, we’re not making any more money.

I realize that you’re not making that kind of money, benefits included. These are averages. The One-percenters skew everything. Still, we can see that over the Bush II years, continuing into the Obama administration, real compensation has remained essentially flat.

As I said, these numbers are skewed, and more so of late.

Keep in mind that the lowest Gini index is 0.25 in Sweden, and the highest exceeds 0.50 in some countries (e.g., Nicaragua, Mexico). The point of the above graph is to show that U.S. inequality rose steadily from 1970 to 1994, then has stayed somewhat flat since. (I include the graph and this brief discussion to illustrate the skewering effect.)

We also know that millions of Americans have lost their jobs following the collapses of the housing bubble and Wall Street. And the duration of unemployment has skyrocketed.

Over 40 percent of the unemployed have been out of work for more than 27 weeks, according to data from the Bureau of Labor Statistics, via the St. Louis Fed.

The picture is gloomy. The unemployment rate, though falling from its peak of 10.9 percent in October 2009 to about 8.6 as of March of this year, is much higher than the post-war average of 5.6 percent (excluding the Great Recession years). Those who have a job are working less, while their compensation remans flat or falling, if we exclude the One-percenters from the calculations. If you lost your job, you’re likely to be out of work for a much longer period than the post-war average of 13 weeks, excluding the Bush II years and the Great Recession.

Well, one predictable response to the doom and gloom from the GOP is more austerity. Yeah, that’s the ticket.

UK hurting

Prime Minister David Cameron insists that austerity works. But the evidence proves him completely wrong.

Consider this chart, based on data from the Office of National Statistics (via Krugman):

The Brits exceeded pre-Depression GDP by the 16th quarter following the 1929 crash. That’s four years. That same number of quarters after the 2008 Great Recession finds that Britain has yet to recover. Indeed, the country is now officially in a second recession.

So far, Cameron refuses to change course, despite having none of the restrictions imposed by the Eurozone (England opted out of the Euro). Krugman suggests that Britain is likely in a death spiral of “self-defeating austerity.” (He links to this piece by Brad DeLong and Lawrence Summers to describe the death spiral.)

Meanwhile, the British government is busy selling off its vaunted National Health Service just as it did to the railroads. The consequences of each are easily predicted: improvements to the rich; misery and suffering for the Rest of Us.

Collective insanity

The economy still struggles, with the Fed recently announcing that we’re in for a prolonged period of only modest growth along with stubbornly high unemployment rates. Yesterday the government reported that growth fell to 2.2 percent in the last quarter, down from three percent in the previous. While many argue that the Fed can and should do more to spur economic recovery and increase employment, Chairman Bernanke avers that doing more could violate the institutional commitment to a two-percent inflation target, thus contradicting his own advice freely offered to Japan some years back.

Inflation, for the moment, does not seem to be going anywhere. It’s been below four percent since 1991, and even reached negative numbers in 2009. Likewise, the gross domestic product has been sputtering year to year. Here’s a look at both.

The correlation between CPI and GDP from 1948 TO 2011 is 0.59, reflected in the curves’ coincidence. They rise and fall together, mostly, with some lag. For example, the inflation rate turned negative in 2009, whereas the change in GDP dropped to -1.4 percent the following year (inflation data from St. Louis FED; nominal GDP from the Bureau of Economic Analysis, NIPA tables).

We might note that the Clinton years were an anomaly. The economy grew at an annual rate of around five percent as inflation actually declined. The relative halcyon days of the 50s and 60s saw GDP growing at a rapid clip as inflation trailed. Ideally, we would be better off as a whole if we could duplicate those numbers—robust economic growth with less than five percent inflation.

J.M. Keynes said that wages are “sticky.” Which is another way of saying that they’re not all that “inflexible.” Some economists suggest that employment levels would rise if wages adjusted downward. But few of us desire this outcome for ourselves. Similarly, employers are reticent to cut wages for fear of alienating the workforce; they prefer to cut jobs, which keeps the survivors sated.

However, if inflation rose, say by a factor of two, real wages would fall, at least temporarily. This would have the effect of lowering unit labor costs, a benefit to employers. Moreover, those hoarding cash or buying presumably safe government securities would likely spend their dollars in anticipation of rising prices. The increased spending, in turn, would likely spur economic growth.

At least this is the argument by those who have advocated for greater fiscal stimulus (e.g., Krugman, De Long), only it’s the federal government doing the spending. Since private entities are now reluctant to invest in productive activities (fearing that aggregate demand is too low to ensure that increased goods and services will be consumed), there is little, if any, danger that government dollars crowd out private dollars.

Fiscal stimulus is just not going to happen, though, given the state of existing politics. Obama got only one bite of the apple; he will not get a second, unless Democrats gain a super majority in the Senate and reclaim the majority in the House. I should hasten to add that Obama’s re-election is hardly a foregone conclusion. If the economy continues its meager run, the Republican candidate could prevail in November.

So, I consider the begged questions: Does inflation cause economic growth, is it the other way round, or is there no causal relationship between the two?

Looking at the above chart, we know that the economy can grow under low inflation, which would seem to undermine a causal connection. We also know that both CPI and GDP can grow together, as they did during the late 70s, which might suggest a correlation, though not necessarily a causal one. Evidently, they can also fall together, as they’ve done recently.

One thing we know for certain. Present policies aren’t working. Nor is there any consensus on what to do. So, Congress and the Fed muddle along ensuring continued misery for millions.

Borrowing Einstein’s definition, we must be collectively insane: doing the same things over and over expecting a different result. But who will take us away?

The trouble with democracy

Let’s face it. If we governed ourselves by plebiscites, we’d be in a much worse mess than we’re already in. This is especially true when it comes to raising taxes and we schmucks get a say in the matter.

We like public services, don’t we? We want our kids to attend good schools. We’d like college to be available and affordable. We like having Medicare and Social Security and nice roads to travel on and police and fire departments to protect us.

But here’s our collective problem. We don’t like taxes, and our loathing for taxes apparently exceeds our desires for public services.

A case in point. Governor Jerry Brown has proposed a ballot initiative that would raise taxes on Californians making more than $250,000 a year. Polls show that a slim majority will support the measure. We’ll see. But polls also reveal a pervasive antipathy to increasing taxes on everyone else.

My home state has gone to hell. It was once atop the union, under Brown’s father, with the best schools and transportation systems. Now it ranks with Mississippi on education. Forget about new roads or fixing old ones. The public sector has been squeezed to the bone, as successive plebiscites have cut revenues to Sacramento.

Those who suggest that you get what you pay for are deemed “socialists” of the worst kind. Yet, the same people no doubt rail against their unworkable and underperforming government and criticize cash-strapped schools and their awful teachers. They want better, but will pay only for mediocrity. I guess it gives them something to complain about.

I know, we live in a land of freedom, where the individual is sacrosanct. Yet, somewhere along the way we lost our heads, expecting miracles on the cheap.

For a start, I’d abolish the initiative process, which is even worse in California than in Washington. In the Golden State a successful initiative takes on super status; it can be repealed or modified only by another initiative. At least in Washington, the legislature gets a crack at whacky plebiscites two years after passage.

We’d like to believe that the people are wise, despite overwhelming evidence to the contrary. We don’t know shit, and we’re content to elect representatives who know even less.

But at least legislatures provide the opportunity to argue and debate. Well…maybe not so much these days. We’re a society so polarized that compromise is impossible. Just look, if you can, at our Congress.

No, I am not a happy camper.

 

Faux foodie

I naturally gravitate toward food. All kinds and, from time to time, lots of it. I was raised in a meat-and-potatoes family, with my dad earning the sobriquet “Murph,” because of his love of the Irish staple. Each meal was a feast, as if the brood would commence plowing the back forty after the last crumb disappeared. So, surplus calories were the norm, and the addiction rarely wanes.

Some element of mind-over-matter has worked of late to reduce the surplus. While I could hardly be mistaken for a stick, I am a considerably smaller man than a couple of years ago. I’m now “watching” my diet, as if I never before glanced at the small mountains of food sitting atop my plate before entering my mouth. Yet the cravings continue.

Okay. Keep eating, but eat “better.” That’s another way of saying “consume more fruits and vegetables,” which I have incorporated into my new eating regime. I also avoid milkshakes, fries, candy, and my favorite cookies. No fun in that.

On occasion I subscribe to food-related magazines, mostly through some deal or other. I figure that if I spend more time preparing the meals than actually eating them, I’ll be doing my body a favor. What comes into my mailbox now is Bon Appétit, a Condé Nast publication. Years ago Food & Wine received my attention.

Here’s my gripe about them: I can guarantee that I will lack one or more ingredients for any of their recipes. At random, I find a recipe on page 114 of the May issue of Bon Appétit. It’s called ‘jerk chicken.’

As it happens, I have some chicken in the refrigerator. So far, so good. I even have an extra red onion and garlic cloves. However, the list of what I lack includes:

  • Scotch bonnet chiles (whatever the hell they are)
  • scallions
  • fresh thyme (mine’s dried and in a small jar)
  • fresh ginger (again, dried but in a small can)
  • allspice
  • kosher salt (I’ve got plenty of Morton’s in a cardboard container with the metal spout)
  • adobo (what?)
  • Maggi Liquid Seasoning (it’s capitalized, though I have no idea why)

You can appreciate that I cannot make any “jerk chicken” tonight. Heck, I doubt that I could find some of these missing ingredients at the store, which caters more to meat-and-potatoes folks.

Oh, and I don’t have any Vietnamese coffee or pine nuts or bottles of clam juice. That means the other recipes in this issue are off limits.

It really is a magazine for snobs, for people who obsess over food (“foodies”) and spend an inordinate amount of time preparing rare dishes requiring ingredients from far-off lands that one might discover in a specialty store. Everett has none.

Well, I do confess to setting out to try some of these during momentary lapses of good judgment. I motor off to the store, then traipse up and down the aisles in search of items found only on the pages of Bon Appétit. I strike out.

“What do you mean you have no Scotch bonnet chiles?” I intone to the poor clerk. “What kind of place is this?”

“Sir,” she says. “We have ample supplies of meat and potatoes.”

“That works,” I reply, quickly abandoning my foolish project. After all, I do like them potatoes.

Public pain

Paul Krugman provides us with a simple chart showing government employment numbers under Clinton, Bush II, and Obama. For all the haranguing of the “socialist” president, real socialists cringe at numbers like these.

As for the peak in the purple curve, that’s the U.S. Census Bureau hiring thousands of people to conduct interviews. They came, they did their job, and then they departed—along with thousands of other government workers.

Krugman surmises that all told 1.3 million public sector jobs have been shed since Obama assumed office. Were people still employed, Krugman suggests, the unemployment rate would be closer to seven percent, down from eight-plus.

Moreover, the data show that workers tossed out of their government positions have not been picked up by the private sector. This report from the New York Times offers more grim news on that front.

The number of people seeking unemployment benefits in the United States remained stuck near a three-month high last week, a sign that hiring has probably slowed since winter.

Meanwhile, Fed chair Ben Bernanke sees no reason to do more to help the economy, despite his admission that the recovery will be a long-time coming and the unemployment rate will remain uncomfortably high. But there’s always inflation just around the corner, right?

Professor Bernanke chided Japan’s central bank for its failure to raise inflation expectations. Chairman Bernanke pledges to stick to the Fed’s stated inflation target of two percent. That’s not going to cut it, in Krugman’s judgment.

By the way, Bernanke responded to Krugman’s sharp criticism of his former boss, and Krugman posts it here. I’ll include an excerpt from Krugman’s blog:

I guess the, uh, the question is, um, does it make sense to actively seek a higher inflation rate in order to, uh, achieve a slightly increased pace of reduction in the unemployment rate? The view of the committee is that that would be very, uh, uh, reckless. We have, uh, we, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable, in that we’ve been able to take strong accommodative actions in the last four or five years to support the economy without leading to a, [indiscernible] expectations or destabilization of inflation. To risk that asset, for, what I think would be quite tentative and, uh, perhaps doubtful gains, on the real side would be an unwise thing to do.

God, he makes Greenspan sound like Shakespeare. Bernanke has been assimilated.

One more thing. If you glanced at the De Long/Summers paper you may have caught this:

…[expansionary fiscal policy] is self-financing. There are no costs. No future tax increases are needed to amortize the extra debt, because economic growth does it on its own.

It is, rather, austerity that requires future tax increases.

Don’t you just love economics?

Speaking of profits

Once again Apple outperformed consensus estimates—big time. The company recorded $11.6 billion in profits for the second quarter. That’s a 94-percent increase over last year’s second quarter.

Among the highlights was this little tidbit from CEO Tim Cook, which I’ve put in graphic form:

I must say that I get a kick out of those who can’t help but short Apple. Take Karl Denninger, for example, via John Gruber. Before Apple released its numbers yesterday afternoon, he had this to say:

But when it comes to Apple the problem is the activation and sell-through numbers — they’re collapsing.

That’s called market saturation and it was inevitable. Even with the “4S” the spurt was short-lived and now it appears the fanboi game has run its course.

Denninger advised his clients to sell Apple. The company’s stock price shot up by almost nine percent today; it’s again above $610 a share. Denninger forgot about the rest of the world, which accounts for over 60 percent of Apple’s business now.